Mark Ups and Pass-Through in Small and Medium Retailers for Rice, Tomato Sauce and Oil

In this paper, we recover and decompose markups, and estimate the pass-through rates from cost to prices in small and medium retail stores for oil, tomato sauce, and rice in Uruguay using a structural model of demand and assumptions about the competitive behavior of producers. The market power for these products has been under study by the Commission of Promotion and Defense of Competition since 2016, and the proposed methodology allows for a deeper exploration of the measurement and understanding of the origin of that market power. In addition to providing a fundamental input for competition defense policies in Uruguay, this study enhances the international academic literature by contributing evidence on cost-to-price pass-through in a developing economy with potentially greater market power than that found in developed countries. About 65 % of the market power under the Nash Bertrand assumption is explained by the ability of firms to differentiate products and 35 % by the ownership structure in the case of oil and sauce. In the case of rice, 49 % is explained by differentiation and 51 % for ownership structure. Finally, the pass-through rates are low for the three products, being under both behavioral assumptions lower than 55 % for the three products.